UK property REIT British Land has unveiled steep NAV declines in its annual results, echoing the precedent set by retail-focused peers including Intu and Landsec.
British Land's EPRA NAV fell by 6.4% to 905p, though this was softened somewhat by share buybacks which added 10p during the period, noted analyst Goodbody.
However, the results mark the heaviest NAV declines experienced by the firm since 2009. These were driven by a deterioration in capital values that was most pronounced in the retail sector, where falls of 11.1% were recorded.
Office values, meanwhile, rose by 1.1% with solid performances noted in the City (up 1.9%) and West End (up 0.7%), outperforming the market.
'This has been another year of good strategic and operational progress in an uneven market, as retail remained challenging but the London office market continued to be healthy,' commented Chris Grigg, British Land's chief executive.
'We delivered further on our strategy to build an increasingly mixed-use business by investing in our campuses, progressing developments and reshaping our retail portfolio. We sold £1.5bn of assets and leased more space than in any of the last five years, securing future income and de-risking our developments, which are now 76% pre-let.
'This broad-ranging operational outperformance is the result of our focus on delivering the highest quality places with the right mix of uses which reflect the changing way people and businesses are using real estate,' Grigg added.
'Robust and flexible'
Indeed, Goodbody noted that while the firm is posting declines 'at a rate not experienced since the bottom of the last market cycle', its balance sheet 'remains in a robust and flexible position'.
Loan-to-value fell to 28.1% over the period despite the value write-downs (from 28.4% in March 2018) due largely to the disposals, which included a £194 mln exit from the Sainsbury’s superstore portfolio.
'The supermarket transaction was 'modestly ahead' of book value and highlights the demand for secure income from grocery led retail in the UK,' Goodbody said.
Equally, like-for-like rental value growth of £15 mln largely offset the negative impact of £14 mln retail CVAs, and the ongoing strong performance of the firm's London office portfolio.
'Looking forward, retail will remain challenged with more value falls to come and while London occupier demand has supported a strong lettings performance in FY19, weakening terms may mean some valuation softening in FY20,' Goodbody concluded. 'However we are buoyed by progress for the major mixed use development at Canada Water, and ambition for enhanced residential exposure.'
